Previous

Part - VII

The purpose of any IT investment is to increase the operational efficiency of an organization so as to reduce costs and improve profit levels. Thus many project evaluation techniques focus on identifying tangible direct project costs. However, for a company to successfully leverage the benefits of IT, it has to identify IT investment opportunities that are pertinent to its business objectives or long-term goals. Such an investment obviously has a lot of intangibles associated with it.

In our view, any IT investment must be evaluated on four fronts - how it impacts the strategy of the organization, how it improves the operational efficiency, what are the financial benefits and lastly, what are the intangible benefits derived out of it.

Strategic Impact: The typical IT strategic plan is loosely connected to stated business goals. It is presented in a language, which only the IT architects can understand. The way to follow, however, is to integrate IT strategy with corporate strategy. To ensure that this happens, both IT and business unit managers must have an active role in the creation of IT strategy. A useful approach is to map IT spending against an ROI tree to determine where the money is really going into (Brett Battles, David & Ryan, 1996).

Consider the case of Delta Airlines. In 1997, the company was facing a technology crisis because of a plethora of disparate systems that made communication difficult. It also led to serious roadblocks in giving accurate and timely service to its customers. The then CEO, Leo Mullin understood that in order to lower costs and improve customer satisfaction through better service, they had to bring all these systems onto a unifying platform. His vision gave birth to what is now known as the Delta Nervous System (DNS). With an estimated cost of over $1 billion, it would provide every employee with real-time information on flight arrivals/departures, status of customers, etc. In order that existing applications are not affected, Delta has decided to space out this investment over a 3-year period. Clearly, the benefits derived out of such a platform are numerous as they helped Delta fundamentally change the way it does its business - it provided Delta a significant lead over its competitors in terms of customer service (Jean Ross & Peter Weill, 2002).

Operational Efficiency: Any new IT investment entails a series of costs like upgrading hardware, purchasing new software, systems integration, training on new technologies, etc. Operating the technology infrastructure generally consumes more than half of the IT budget and given the cost constraints already faced by the companies today, it is essential that operations be managed carefully to control costs. One way to do this is to standardize as many technologies as possible so as to reduce the probability of ending up with trying to interconnect incompatible systems.

Next

* Contributed by -
Mrugendra Shintre,
Manoj Kumar Gaddam,
II Year,
IIM Lucknow.